Tips for Renting Your Vacation Home This Summer

Tips for Renting Your Vacation Home This Summer

One of the ways to defray the costs of owning and maintaining a vacation home, is to rent it out when you are not using it.  Income earned from those rentals may be reportable on your income tax return. For income tax purposes, a vacation home may include a house, apartment, condo, mobile home, boat, or similar property.  In order to be considered a “home”, the vacation property must have basic living accommodations, such as sleeping space, a toilet, and cooking facilities.  Read on for some helpful tips.

1. Income and expenses related to renting a vacation home are reported on Schedule E of your personal income tax return.
2. As long as you (or your family) also use the home, your rental expenses cannot exceed the rent you receive (meaning you cannot claim a loss.)
3. Special rules must be followed when you rent out a home that you also use personally.  Expenses must be allocated based on the number of days the unit is rented or available for rent, and the number of days it is used by you and your family.  Any expenses that cannot be deducted on Schedule E, may be deducted on Schedule A.
4. If you you rent a vacation home for less than 15 days a year, you are not required to report the rental income on your tax return.  In this case, any mortgage interest or real estate taxes for the home would be deducted on Schedule A.

If you are currently renting, consider owning your own vacation home!  See https://www.oceanfronthhi.com/stop-renting-and-buy-home/ for some reasons why!

By: Honorine M. Campisi, Senior Tax Manager

Tax Reform Impact on Itemized Deductions

The Tax Cuts and Jobs Act made changes to expenses that taxpayers are allowed to deduct if they itemize.  Among these changes are: a reduction on the mortgage balance for which interest may be deducted, reduction of state and local taxes deduction, elimination of miscellaneous expense deductions, casualty losses (except in the case of federal disaster declarations).

The mortgage interest deduction has been changed for mortgages taken out after December 15, 2017.  Any new mortgage after that date must be $750,000 or under for the interest to be fully deductible.  New mortgages that exceed $750,000, will be only partially deductible.  The previous limit was $1 million.

Beginning with 2018, the state and local tax deduction is limited to $10,000.  The $10,000 limit is applied to the combination of income taxes and real estate taxes.  So, if you pay $12,000/ year in real estate taxes and pay $6,000 of state income tax, instead of taking the total deduction of $18,000 – you will be limited to $10,000.

Also beginning with 2018, the miscellaneous expense deduction is gone.  In the past, miscellaneous expenses that exceeded 2% of your adjusted gross income were deductible.  This included expenses such as: unreimbursed employee expenses, union dues, job search expenses, tax preparation fees, investment advisory fees and safe deposit box rental fees.

Finally, casualty losses are no longer deductible unless they are a result of an event that is declared a federal disaster.  That means your flooded basement, fire damaged home, and theft losses are no longer deductible.

 

Honorine M. Campisi, CPA

NEW SALES TAX RULING BY THE SUPREME COURT AND ITS EFFECTS ON INTERNET BUSINESS

The Supreme Court of the United States recently ruled on a sales tax case - South Dakota vs Wayfair, Inc.  The Supreme Court ruled in favor of South Dakota allowing them to collect sales tax on out of state transactions even when the seller has no physical presence in the state. In the past if a company did not have a physical presence in the state than it was not required to collect sales tax for that state.  With this ruling that will no longer be a guideline. Your economic presence will now be the indicator. If you sell in a state than you must collect sales tax for that state if you meet the collection/filing thresholds. This will have a large impact on businesses doing online sales as well as interstate sales. The South Dakota ruling now says that if you have 200 sales transactions in the state of South Dakota regardless of the dollar amount of each transaction or $100,000 in sales per year than you have to collect and remit sales tax to the state. There are 21 other states that have similar rules in their doctrine and they were just waiting on the ruling of this court case to start enforcing them. This has huge implications for ALL businesses that sell to other states. You will be required to know the rules for collection and keep track of the limits and know when you have met them and would be responsible for the collection of sales tax. This is just a brief overview of the changes coming to Sales Tax. Feel free to give our office a call for more information. 

By Christine A. Murphy